Calgary, Alberta-based exploration and production (E&P) company, Encana Corporation (ECA), reported better-than-expected fourth-quarter 2013 earnings. A significant rise in liquid output from resource plays in USA and Canadian divisions aided the results.
The company announced operating earnings per share (excluding one-time items) of 31 cents, comprehensively beating the Zacks Consensus Estimate of 17 cents.
The fourth-quarter 2013 better than expected earnings was announced by the company on Feb 13, 2014, before the opening bell. The company closed at $18.89 per share on that day, reflecting a 1.7% hike from the closing price of the previous day.
However, comparing year over year, earnings decreased 22.5% from 40 cents per share (adjusted) owing to considerable increase in operating expenses.
Revenues (net of royalties) came in at $1,423.0 million, down 11.3% from the prior-year figure of $1,605.0 million. Moreover, the results failed to beat the Zacks Consensus Estimate of $1,536.0 million due to reduced natural gas price realization.
Full-year 2013 adjusted earnings came in at $1.09 per share, outpacing the Zacks Consensus Estimate of 92 cents per share. However, the figure decreased from the year-ago adjusted profit of $1.36 per share. Revenues (net of royalties) of $5,858.0 million increased 13.5% from $5,160.0 million recorded in 2012.
Production & Prices
In the fourth quarter of 2013, natural gas production declined approximately 7.0% year over year to 2,744.0 million cubic feet per day (MMcf/d), primarily due to drop in production volumes in resource plays of the USA division. Encana's realized natural gas prices fell approximately 13.6% year over year to $4.34 per thousand cubic feet (Mcf).
The company's oil and liquids production climbed 82.0% year over year to 66,000 barrels per day (Bbls/d), aided by a significant improvement in output from the resource plays of the USA and Canadian divisions. Encana sold oil at $67.01 per barrel, up a marginal 0.5% from the fourth quarter of 2012.
Operating Expenses
Encana reported operating costs of $221.0 million for this quarter, representing a year-over-year hike of 20.8%.
Cash Flows and Drilling Statistics
Encana generated cash flows from operations of $677.0 million or 91 cents per share against $809.0 million or $1.10 per share during the fourth quarter of 2012. The company drilled 196 net wells against 177 in the prior-year quarter.
Capital Spending and Balance Sheet
Encana's capital investments during the quarter were $717.0 million (excluding acquisitions and divestitures). As of Dec 31, 2013, cash on hand was $2,566.0 million and long-term debt (including current portion) was $7,124.0 million, representing a debt-to-capitalization ratio of 58.1%.
Guidance
The company is expected to invest roughly $2.3–$2.4 billion in upstream activities in 2014.
Encana’s 2014 total production projection lies in the range of 3,020–3,250 million cubic feet equivalent per day.
Zacks Rating
Encana currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can look at better-ranked players in the oil and gas exploration and production sector like Athlon Energy Inc. (ATHL), Cabot Oil & Gas Corporation (COG) and Warren Resources Inc. (WRES). All the stocks sport a Zacks Rank #1 (Strong Buy).
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